Policy issue:
Fair and efficient pricing across modes

Figures

Fancybox relations

Key assessment

The share of household expenditures on transport appears to be relatively stable across time, countries, and income groups, exceptions left aside. Figure 1 does indicate a slight increasing tendency in the 70's and 80's, a development that was pronounced for Italy and the UK, but not for the rest of the countries, and not for later years, as indicated in table 1. Moreover, the increase seems mainly confined to the budget for vehicle purchase.

The share of spending on transport appears to increase with income, but the difference is largely due to greater spending on vehicle purchase. As wealthier people are more inclined to spend on vehicles as luxuries and status symbols, the greater share of spending could therefore better be attributed to these factors rather than purely transport. Consequently, the share of expenditures on transport is roughly the same across income groups, although some increase with income is discernible. In absolute terms, the expenditures on transport increase with growing incomes, reflecting the increased consumption of transport (e.g. fuel). Variations can be found between social groups, retired people for example spend a good bit less on transport, as do unemployed. Travel budgets are also much lower for households without a car, a situation more common in the lower income groups, and may explain the differences among income groups. The differences imply that the fixed travel budgets are not, as some have suggested, a human constant.

If the share of income allocated to transport is constant for the different groups in society, increasing the prices (internalisation) becomes a useful tool for governments to influence transport volumes. When transport prices increase less than incomes, which has been the case in recent years, transport becomes more affordable, and with a stable share of the income allocated to transport, transport volumes increase. However, it is also believed that people not only spend a (roughly) stable share of their budget on transport, but also a stable share of their time (Bureau of Transportation Statistics, 20002). As a consequence, travel speed also becomes an important determinant of transport demand, along with costs.

With stable transport prices, the decoupling objective of the European Commission may not be easily achieved. As incomes generally increase about 2 % per year, transport expenditures will increase given a constant share of income devoted to transport, leading to greater transport volumes which puts the decoupling objective under pressure while also increasing pressure on the environment.

Another important consequence is that policy instruments that reduce the environmental impact of the vehicle while simultaneously reducing the consumer price (e.g. by making cars more fuel-efficient) will sooner or later create a rebound effect: the consumers will 'use up' their constant transport budget by simply driving more. In the long run, consumers will turn the reduced costs into greater opportunities for example by accepting jobs at a greater distance from their home, leading to greater commuting distance.